Average capital values of residential property in Dubai were 53 percent higher in the third quarter, compared to last year, according to a report from consulting firm Cluttons.
Capital values are still 26 percent below the market peak in the third quarter of 2008, but have increased 47 percent from the bottom of the market in the second quarter of 2009.
"The vibrancy in the residential market has resulted in growing confidence in the real estate sector," Steve Morgan, head of Cluttons Middle East, said in the report. "But we believe concerns of the market overheating are still overly negative, especially given that despite the recent gains, average residential values remain well below the market peak."
Property values in Dubai have been increasing, causing concern among analysts of a bubble repeat in the city.
Last month, the Central Bank of the United Arab Emirates issued new rules for mortgages to cool the market and prevent the previous property boom-and-bust cycle. Mortgages valued at less than 5 million dirhams ($1.4 million) will be capped at 75 percent for foreigners buying their first home, while financing will be limited to 60 percent for foreigners buying a second home.
The Dubai Land Department also doubled the property registration fees from 2 percent to 4 percent recently, impacting the volume of deals in Dubai's residential market, according to the firm.
However, the growth in property values seems to be easing, positioning the market for a "sustainable pace of growth," Cluttons said.
The residential property market witnessed an eight percent quarterly growth in values during the third quarter, compared to the 23 percent growth seen during the second quarter.
The report highlights a growing number of buy-to-lease investors, both domestic and abroad, fueled by mortgage rates of between four and five percent.
While future growth in values remains uncertain, Cluttons views the market as more sustainable.
"Although the long term effect remains to be seen, short term indicators show that recent regulation appears to be stemming further sharp increases in property prices," Mr. Morgan said. "Rather than being fuelled by 'fly-by dealers', current demand is primarily being driven by a growing population and rising employment levels."